Gloomier than Gloom

May 17, 2007

We noticed this evening that the Central Fund of Canada (CEF) is selling at a 3.8% premium and we can't remember ever seeing it that low. It seems that sentiment for the precious metal sector is pretty glum. So, why not check in on the $XAU chart and see if any sense can be made of these times.

No, this is not a bullish chart at present. In fact, it suggests lower prices although a bounce at any time shouldn't be ruled out. Eventually, it appears that the gap near the 130 area may fill. Could prices go even lower? Sure, they can always go lower. After all, this is the gold sector we're talking about. How low…you're guess is as good as ours.

At present, we're not convinced that the island bottom will fill its gap. But, it could.

Here's what we're watching for:

  1. RSI nearing 30, a previous area of support.
  2. MACD needs to cross upward.
  3. $XAU:GLD needs to cross and remain above the descending wall of resistance.
  4. If they all happen to occur around the same time with a pretty white long wicked hammer candlestick that would be just fine with us.

The present decline from mid-April is likely an ABC down. It's interesting that a 1:1 ABC down projects exactly 130.87, right into the gap. The next week or two should provide fireworks for all!

The purity of gold is measured in carat weight.

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